Cheap Cost Segregation Studies are becoming the norm. Why is that? First…
The definition of cheap, as an adjective, according to Merriam-Webster online dictionary shows multiple entries. Here are a few –
- of inferior quality or worth: TAWDRY, SLEAZY, cheap workmanship
- gained or done with little effort
- contemptible because of lack of any fine…qualities
The term “cheap” conjures up images of WalMart, Costco, Sam’s Club, and so many other “cheap” purveyors of mostly low-quality products. It implies you “get what you pay for.”
Quality is never “cheap!”
Let me say again, you get what you pay for! Cost segregation has been relegated to just another “service” that requires no expertise. It is not unlike how most view the accounting profession, or attorneys, or even doctors. There are so many that they all must be “ok” or “good” or “quality professionals.” Consider this. When you learn from your family doctor that the tests came back positive for cancer, do you ask, “who’s the cheapest cancer doctor you can recommend?” Of course not! You want quality, not cheap!
Think about it. Cost segregation requires knowledge of construction and building techniques. The IRS Chief Counsel says so. These same professionals must know the Internal Revenue Code in order to apply their construction knowledge. Wouldn’t you imagine someone with such highly technical and specialized knowledge would be a highly paid individual? Someone with decades of this knowledge who knows how a building is constructed? Someone who knows the tax code inside and out? That means such qualified professionals are not cheap! The cost segregation industry is a boutique industry…it is highly specialized. Do you want “cheap” when you are dealing with the IRS?
Forensic cost segregation studies take time!
No two cost segregation studies are alike. Even if you have 2 “identical” buildings there will be slight variations in both that require “fine tuning.” Forensic cost segregation is the application of all 32 divisions of the building code to every cost segregation study. Even the smallest of projects require 30 to 40 hours to complete. That would be like a rental house or small tenant improvement. Most typical cost segregation projects require up to 6 weeks to complete. That’s 240 hours or so if only 8-hour days are worked. This is rare as most cost segregation engineers work 10- to 12-hour days. The reason is simple.
There are literally thousands upon thousands of building components to be considered. Not only the components themselves but how they are connected or constructed. The IRS says it matters how the building is constructed. Some methods allow for accelerated depreciation. Some methods do not. That’s the difference between 5-year depreciation and 39.5-years.
Time is money!
So, if time is money, consider this. You own a million dollar building. You want a cost segregation study to be done on your building. Being smart, you “bid it out” looking for a good deal. At this point, what are you comparing? Price? If so, buyer beware. In the cost segregation industry, there is a vast number of purveyors but only a handful of quality forensic engineering firms. Do your research. What do they offer? Are there extras included in the fees? Some firms offer IRS audit protection. Some offer extended terms. There is one cost segregation firm that offers 4 years of services for one fee. Are there any performance guarantees? Again, do your research!
Take advantage of this tax planning tool today if you own commercial real estate or residential rental property!